Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I rise in support of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. The reforms in this bill are necessary, significant and future-thinking. They focus on two key areas: mandatory climate reporting targets for large businesses and financial market infrastructure protection. These modernising reforms are important because we need to position the Australian economy for future economic opportunities, and building a more robust system is a key foundation for that.

The reform of financial market infrastructure protection is long overdue, and we can thank the former government for their decade of inaction on that. This infrastructure is the framework for crucial financial system operations such as Commonwealth and state government debt, security trading, access to liquidity and risk-management products, and the RBA's implementation of monetary policy. These changes were recommended in the 2014 financial system inquiry. In 2020 the Council of Financial Regulators again recommended giving the Reserve Bank of Australia the capacity to intervene and quickly resolve crises impacting critical financial market infrastructure. Given the GFC was a recent memory at the time, it is, quite frankly, astounding that it took the former government six years to even agree with the recommendations, and it won't surprise anyone here that they never actually got around to implementing them. That was left to a Labor government, and today the Albanese Labor government is taking action to strengthen the regulatory arrangements for Australian financial infrastructure, including the RBA and ASIC.

It's significant as well that these reforms follow best-practice international standards that emerged post-GFC, and are in line with recommendations from the G20 and the International Monetary Fund. Put simply, the amendments will ensure the RBA has the power to ensure continuity of clearing and settlement services during a crisis such as an IT system failure at the ASX, a cyber-attack—heaven forbid—or major international market turmoil. Clearing and settlement facilities settle transactions and securities such as bonds and equities, and in derivatives such as options and futures. These crucial functions are necessary for financial stability. A failure of a clearing and settlement facility would significantly disrupt our financial markets.

These reforms will ensure that the RBA can act swiftly during a crisis. There will be checks and balances in place. These powers can be enacted only when one or more conditions for resolution are met. These are distinct from the daily operational regulatory oversight and risk mitigation carried out by the RBA. The RBA will be also be able to provide up to $5 billion in support as a last resort to ensure the continuity of clearing and settlement services and to avoid financial system instability—avoiding fear effectively. In such cases, approval would be required by the Treasurer and the Minister for Finance, and the funds would be recoverable.

The amendments will also ensure that the RBA has the regulatory power to help prevent crises occurring by extending the requirements on domestic and foreign financial market licensees. These regulatory changes will provide certainty for industry, as the RBA will be able to support the market and reduce the risk of economic damage.

The bill includes further strengthening of clearing and settlement facilities by providing greater licensing and supervision powers to ASIC and the RBA. These include the power to give direction, to ensure fit, proper and competent person requirements, and to ensure that changes are approved by the minister or ASIC. The final regulatory changes involve transferring the minister's current daily operational supervisory powers to ASIC and the RBA.

The second major part of this bill's reforms is to implement mandatory climate reporting requirements for big companies. This reform is a key component of Labor's vision for an Australia that has cleaner, cheaper and more reliable energy. The development of standardised and internationally aligned requirements for large companies to report climate-related risks and opportunities is another Labor election commitment that we are delivering on. The establishment of a climate risk disclosure framework will have many benefits for investors: it gives them transparency when investing in new opportunities as part of the net zero transformation; it will enhance our attractiveness when it comes to international capital investors who are keen to support Australia's energy transformation and, let's be honest, to make a buck; and, importantly, it will keep climate-related plans, risks, opportunities and accountability front of mind for large business and financial institutions. As we all know, capital have known about this risk for a very long time. They've looked on with surprise to see Australia fighting those climate wars for a decade, but capital understood risk. What this means in practice is that businesses will have to develop and report on plans to reduce emissions and to identify the effects that climate change could have on their physical assets. They will also have to report on the opportunities for expansion that the net zero transformation may present. This will support large businesses to prepare for this change.

The new requirements will start on 1 January next year for Australia's largest listed and unlisted companies and unlisted financial institutions. This means companies that meet two of the three following criteria: they have a consolidated revenue of more than $500 million—so not just the local corner shop—and/or consolidated gross assets of more than $1 billion and more than 500 employees. These are large businesses. We will then take a phased approach over 2026 and 2027 to bring more businesses in line with these reporting requirements. This lead-in time for preparation and then the subsequent phased approach will mean that businesses can build their internal capability to deliver high-quality reporting.

By 2027-28, all businesses with revenue of over $50 million or gross assets of more than $25 million and more than 100 employees will be required to report in line with the announced framework. As part of the adjustment period, the government will modify liability settings under the Corporations Act for a three-year period—the carrot rather than the stick. During this time, the regulator can take action against misleading and deceptive conduct only. The reporting requirements will be both comprehensive and ambitious. This is a key part of sustaining and growing Australia's solid reputation as a destination for international investment—and we need international investment to support our transition to net zero.

As the 13th-largest economy in the world, we need to lead. There are 187 other countries after us who are looking to countries like Australia to see how you can do it, especially when you're exposed to fossil fuels as Australia is. That's why the mandatory reporting will include information on scope 3 emissions. People might not know, but scope 3 emissions are indirect emissions that occur outside of the core operations of a business. For many businesses, these are the emissions that occur within the supply or value chains rather than being generated directly. The reporting requirements will assist businesses with understanding the risks associated with scope 3 emissions.

We know that industry broadly supports the mandatory climate reporting initiative, because we've consulted widely with industry, investors, academics and regulators. We also understand that the assurance market for sustainability disclosures is emerging, so full assurance will not be mandatory until 1 July 2030. That's why we are bolstering the Australian Auditing and Assurance Standards Board to ensure that the assurance pathway responds to changes in industry capability and expertise.

The Albanese Labor government is committed to positioning the Australian economy and Australian businesses for a changing future. That's the best way to secure the future for Australians. It's vital to get this work underway so it can keep in line with international capital market expectations. We know that there are challenges with climate change, but we also know that there is potential for well-targeted investment in the net zero transformation. The reforms in this bill are part of Labor's broad sustainable-finance agenda. This will mean the establishment of a coherent and complete suite of regulatory powers which will provide stability and efficiency. They will ensure that we manage the risks and, more importantly, the opportunities associated with dangerous climate change. I commend the bill to the House.

Nola Marino (Forrest, Liberal Party, Shadow Assistant Minister for Education) Share this | Link to this | Hansard source

I want to focus my comments tonight on the scope 3 emissions section of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 because the effects of the indirect emissions in scope 3 won't begin and end with large business. This is an entirely new and major impost on business and industry, but it will particularly impact on small and family businesses. It will actually impact on those who haven't yet realised what's ahead for them, as we've heard tonight, starting in 2027-28 but by 2030 being mandatory.

ASIC itself has said the compliance will be passed on to small business. It's not just large business; the compliance cost and work will be passed on to small business. ASIC itself has said so. I know the Small Business and Family Enterprise Ombudsman, acknowledged by ASIC, is very concerned about the impacts of the scope 3 emissions because many of the entities that small businesses bank with, the businesses that small business supply or buy from, will have to provide the scope 3 sustainability report each financial year. But that regime forces all companies with turnover of over $50 million—it's not profit; it's turnover of over $50 million—or assets over $25 million to disclose and report annually audited and verified scope 1, 2 and 3 emissions disclosures to ASIC.

Scope 3 emissions are those that happen when a business sells its products, when it buys the inputs it needs to run the business, as well as reporting to financial institutions—when the banks get involved with this, which they are and will be with this legislation—that the business, the small and family business, borrows from, perhaps invests in or has lending from in different ways. This will be a mandatory reporting process for businesses with, as I said, over $50 million turnover or a $25 million asset level, which the Treasury itself has said will cost $1.3 million per business per year to comply with. That's $2.3 billion a year every year in compliance costs being passed on to small business, to both their customers and suppliers—and I think, given what we're seeing here in this place, the $2.3 billion will prove to be a conservative estimate, given the Labor government legislation we are dealing with today and what's encompassed in it. If those small businesses cannot pass on their costs of all that work—the auditing, the collecting of data—to their buyers, they will have to close; they'll have no choice. Good luck trying to get increased prices from major supermarkets or big businesses, given their market power, when you're a small business!

Independent research has put the cost to the economy of red tape at over $176 billion a year. The Labor government is going to add another $2.3 billion to that for business. Imagine what the reduction in the cost of living and the cost of running small and family businesses would be if that $176 billion was reduced or gone. By default, this bill simply adds another $2.3 billion at least to the $176 billion—just more complex, confusing and costly red and green tape, probably designed to keep busy the 36,000 additional public servants Labor has employed.

I had a discussion with a family dairy and dairy manufacturing business regarding the scope 3 emissions in this bill. It will be forced to report based on that $25 million asset threshold. The first response I got was, 'Does the Labor government want to send all businesses broke?' It's a fair call. The owner said, 'This is just the next layer of green and red tape we have to deal with, and it's costing us a fortune.' This is coming at the same time so many businesses in the south-west in manufacturing, hospitality, freight, construction and agriculture have been and are under enormous personal and financial pressure. They're struggling for workers, there's no accommodation available for workers if they can get them and the owners themselves are simply exhausted. These are the people who work in and on their business every day. We know 16,000 businesses have become insolvent in the last two years. Here are the same small businesses that are going to have to pay through the nose to provide professionally assessed, assured and audited reports on their scope 3 emissions every year to give to those bigger businesses that the previous member spoke about.

This additional cost is coming at a time when, according to COSBOA's Luke Achterstraat, there are a million small businesses who are not able to pay themselves properly or break even. There are 2.5 million small businesses in Australia employing almost half the private sector workforce that will be impacted. There's no doubt that these same small businesses will be in the firing line from the Environmental Defenders Office and other activists, given the Labor government's continued funding of the EDO in relation to this reporting process. Those same small businesses will have a foot on their throat and will be worried constantly and under pressure because of the threat and risk of regulatory action from ASIC, the ACCC, their banks, the businesses they're dealing with or activists.

How much information will actually enough for these major corporates? Will they demand what will effectively be anticompetitive information that gives them even more market power and control, by exposing the finances and cost inputs of the small businesses that supply them or buy from them? How will big corporates weaponise that information? And how many small family businesses will be at risk of being 'debanked' if they can't or don't comply? That's what we're facing here from the finance sector.

As we know, the major banks in Australia have an enormous amount of power already. I got an email this week from another bank that's shutting down a whole tranche of branches, some in my electorate. These banks are even going as far as charging customers to access their own money held in debit card accounts—that's your money, sitting in a debit card account, and yet you're charged to access your money that's sitting there.

Small and family businesses are under enormous financial and bureaucratic pressure. Already we see the same information being asked for in different ways from various agencies, over and over—local, state, federal. It is a massive, endless reporting process, each time slightly different to meet the specific demands, adding layer upon layer of cost, pressure and work for small family businesses. There are multiple and ever-increasing requests—time, money and grief for small-business owners, the ones who are working their hearts out. They're often the people who give people their first job or their last job in life. These people are time poor and are simply seeking the simple and basic right to supply to the buyer or corporation.

Australia's productivity has fallen, and, in global economic competitiveness rankings, Australia declined from fourth to 19th in 2023. That's actually the harm that red tape is imposing in this country. It is helping to make us less productive and far less competitive. Independent research shows that, since 2005, federal red tape has increased by 88 per cent, two-thirds greater than the national economic growth. And yet here Labor is imposing another massive increase in red and green tape.

I just want to look at the practical example of the layers of regulation and compliance needed in a small business. I will talk about a dairy farm, for instance. Buying, selling and finance will all have to be accounted for under scope 3, demanded by the bigger businesses. So the farmer will have to pay to have their whole business assessed and apportion their scope 3 emissions across all of their inputs, like bought-in feed, electricity, irrigation, fuel, cartage, contractors' services, repairs and maintenance, hardware, new infrastructure, fertiliser, telecommunications—you name it. They then will have to do the same to assess, apportion, audit and report their scope 3 emissions for every business they sell to. That could be the milk processor, the abattoir they sell cattle to, the supermarket or buyer of their cattle at a saleyard, the buyers of calves. They will all feed into this interconnected, elastic stream of scope 3 emissions reporting. The banks they borrow from or have investments with will demand this information from farmers and small businesses. I am really concerned about the debanking of customers that we're seeing.

But, of course, on a farm the circumstances change as often as the weather. I just remind people watching: no farmers, no food. The cost and compliance will be variable, onerous and obscene, in my opinion. Then I look at the small businesses that supply the dairy industry, which will have the same reporting obligations and pressures. The milk processor will have to assess, apportion, audit and report their scope 3 emissions up and down their supply, value and finance chain. The local machinery dealer will have to do the same, whether they are selling John Deere, Massey Ferguson or any other brand. These companies may well have assets over $25 million. They may have to report their scope 3 emissions up and down their individual supply and value chain. So, when you look at this, this is just extraordinary layer upon layer of regulation, red tape and endless paperwork.

The abattoir will have to do the same. The abattoir will have to account for all of the scope 3 emissions of every farmer supplying them with cattle and the livestock transporters who deliver the cattle to their yards. We've seen the effect that our major supermarkets have had on cattle markets and prices.

What about the constant seasonal changes experienced by farmers? Be it a dry season, be it times when you need to apply more fertiliser, be it the seasonal aspects of when you're seeding, doing hay or harvesting, all of these will change the reporting requirements constantly. So here we are, punishing even more small businesses—our farmers, especially the farmers who are working their land, working on greater productivity all of the time.

Of course, as I said, they could be supplying a range of different entities, and this goes across all different businesses. When you look across this—whether, for instance, you're selling grapes to a winery or it's the fruit and vegetables that go to a supermarket—scope 3 has to be reported. That all comes back to the supplier of those products—the individual grain growers, perhaps—with land and farming assets over the $25 million.

I don't know what impact this is actually going to have on local government. Will the bankers need to report their emissions to meet their obligations as well? I don't know whether the businesses that supply the projects and programs that local government tender out will have to report their scope 3 emissions and provide those sustainability reports.

It goes on and on. There are irrigation cooperatives and their members and customers up and down. There are businesses like Albemarle, Simcoa, Alcoa, Perkins in my patch, Doral, Fulton Hogan, Qube, Dale Alcock. All of their supply and value chains will have to be accounted for with scope 3.

I find that this is just an extraordinary mesh of additional requirement. It actually reminds me of a terrible elastic condition. This will filter down to all levels. It's a massive impost on small and family business, and even on the bigger businesses and the major businesses that are getting on with their business. They've got people that can do this sort of work for them. Those in small and family businesses work in their business all day, and sometimes half the night, and this type of reporting comes over and above that, plus they will have to pay. From what I can see there will be a new industry built around this, and a new bureaucracy in Canberra that will have to deal with this as well.

When you put it all together, I think the inclusion of scope 3 emissions and how this will filter right down from the top to the smallest business and right across the board is going to add so much cost and so many more layers of useless regulation in many terms for those small businesses that are forced to comply with it.

Zali Steggall (Warringah, Independent) Share this | Link to this | Hansard source

The Guardian recently surveyed a number of climate scientists on the Intergovernmental Panel on Climate Change. What they said was nothing short of earth-shattering. Almost 80 per cent of scientists who responded to the Guardian's survey indicated that they foresee at least 2½ degrees Celsius of global heating ahead, while almost half anticipate at least three degrees Celsius. Only six per cent thought the internationally agreed 1.5 degree limit would be met.

It's clear that all the efforts in Australia and globally that many are trying to undertake to transition to a net zero economy and keep to the Paris Agreement's targets are falling short. Let me repeat why climate scientists are so alarmed at this point that we are currently not on track to meet these internationally agreed targets. They point to the lack of political will to meaningfully do what needs to be done. The year 2023 was the warmest on record, with the earth 1.36 degrees Celsius warmer than the 1850-1900 preindustrial average level. Whether meeting the targets or not, climate change is changing how our economy functions in so many aspects. For businesses, climate related risks have financial implications. Extreme weather destroys supply chains and damages productivity, and transition risks, such as policies to phase out fossil fuels, will undermine core business. Investors need to understand how exposed a company is and identify and manage these risks. For Australia to have a resilient economy, we need the companies within that economy to be resilient businesses. The changing climate threatens the viability of some of those industries and entities, but it also presents opportunities to cut greenhouse gas emissions and to take charge of the opportunities that the net zero economy will allow us. We simply cannot put our heads in the sand any longer.

Deloitte's 2022 report, The turning point, highlighted that investment in green technologies which help us pivot to a net zero economy will unleash a transformation globally that could increase the size of the world economy by $43 trillion in net present value terms from 2021 to 2070. This bill helps align Australian entities with international corporate reporting standards, allowing credible, transparent and comparable climate related information to enable responsible investment decisions. For Australian companies to be even remotely competitive on the world stage, and to continue trading, it's vitally important for them not to face carbon border tariff adjustments.

They must be able to make this kind of disclosure. Accurate information is the key thing; it's essential for good decision-making in a market economy. The private sector is the major emitter of greenhouse gases. Until now, data around the risks and opportunities that climate change poses have been piecemeal and sporadic. A good disclosure resume is a fundamental step towards closing this data gap and improving the availability and accessibility of data that better indicates how companies and investors must mitigate risk and respond to opportunities. This will help ensure greater action on climate is taken and that capital is allocated more credibly to activities such as reducing extreme weather hazards, minimising pollution and investing in resilience. It's imperative that climate reporting by corporate entities in respect of the past and future be as precise as possible and comparable both here and abroad.

The bill before us today is one more tool in the toolbox to help shift the dial on that effort. Schedule 4 of the bill before us establishes a climate related disclosure regime for Australian companies and entities. The bill aligns Australian corporate climate related disclosure with the International Financial Reporting Standards set by the International Accounting Standards Board, encompassing climate related evidence, strategy, risk management, targets and metrics. It is important; it empowers the Australian Accounting Standards Board to develop sustainability standards, which it aims to have ready once this bill is enacted. It brings us into line with other jurisdictions, including the European Union, the United Kingdom, Canada, Singapore, New Zealand and Hong Kong, which already mandate climate related disclosures by corporate entities. It allows for a phased reporting approach, with entities classified by the size of their revenue, gross assets and employees, or whether they already report under the National Greenhouse and Energy Reporting Act 2007. They're classified as follows: group 1 is the largest entities, estimated as numbering around 723 entities. They will commence reporting from 1 January 2025. Group 2 is estimated to include about 1,117 entities and they will report from 1 July 2026—they have been provided with additional time. And group 3 is estimated to number 4,555 and will report from 1 July 2027. They have a significant amount of time to put a system in place with the ability to do this reporting. I should say that group 3 entities which do not have material climate related risks will not be required to prepare complete standardised climate disclosures. I appreciate that many in this space have made submissions and contributions relating to the possible impact on small businesses as they fit within the supply chains for larger organisations. I must say I am not surprised that, again, the members from the coalition are catastrophising the effect of this bill, making out that it's somehow going to be the end of small businesses and the agricultural sector. The reality is that we cannot compete, we cannot trade internationally, unless we get on board with the kind of disclosure that is required in the current economy internationally and from a trading point of view.

This is a high stakes road map, and there are still some elements that need to change in this bill. Overall it's a good bill, and we need to implement this reform as soon as possible. The price of inaction the scientists are telling us, as the Guardian reported a few weeks ago, is:

… a "semi-dystopian" future, with famines, conflicts and mass migration, driven by heatwaves, wildfires, floods and storms of an intensity and frequency far beyond those that have already struck.

So let's be very clear: business as usual is not a possibility.

Nevertheless, there are parts of this bill that I believe need to be changed to maximise its effect. For me, it is a concern that the modified liability provision in this bill will encourage, I suspect, greenwashing, placing at risk the very intent of the legislation. The purpose of this bill is for accurate, comparable climate related reporting. The concern about the modified liability is that it would cause the misallocation of investment capital and compromise Australia's ability to reach its emissions reduction goal under the Paris Agreement. Section 1707D of this bill is a modified liability provision that prevents third parties from initiating civil action for false and misleading statements for three years to 2028, effectively meaning they cannot be held accountable for commitments made. This will apply also to the reporting of scope 3 emissions, scenario analysis and transition plans, and forward-looking statements for 12 months. The bill allows only ASIC to launch civil action against an entity for false or misleading sustainability statements in the first three years from the start of reporting. That realistically opens a window in which entities could make false and misleading statements without facing the threat of legal repercussions from investors or affected individuals, thus undermining the credibility of the climate related disclosures by corporate entities. Relying solely on ASIC to enforce civil action in these periods after the start date of reporting means that only the most egregious examples of false or misleading statements made in these reports are likely to be pursued, if any at all. I don't think that is good enough.

Many of Australia's major emitters have been reporting annually on climate related issues for around a decade. Since 2021, in response to investor demand, many ASX companies have been publishing climate transition plans, and smaller companies in groups 2 and 3 have had time to develop their capabilities due to the phased approach of the reporting requirements. In this context, we're taking a backwards step by having that provision that allows them to modify liability on climate reporting going forward.

Moreover, the Corporations Act already provides sufficient protections for directors. For example, under section 189 of the Corporations Act it states that a director's reliance on information or advice prepared by an employee or expert is taken to be reasonable so long as the reliance was made in good faith and the information was subject to the director's independent assessment of the information or advice having regard to the director's knowledge of the corporation and the complexity of the structure and operations of the corporation. Therefore, there is no need for the modified provisions that put a halt on accountability. Of course, compliance with legislation is essential to the rule of law. Accordingly, a better course is to amend schedule 4 of the bill by removing that section 1707D entirely. I will attend to that in the consideration-in-detail stage. The existing provisions in the Corporations Act already allow a defence for directors who pursue their duties with care and diligence. Removing section 1707D will ensure that climate related disclosures are to be treated in the same manner as financial reporting.

We need to pass this bill and implement the changes it will bring about. Enhancing the credibility of our reporting system will bolster business and investor confidence. This is crucial for attracting increased capital investments, which in turn will accelerate our emissions reduction. This is essential for a swifter transition to a net zero economy.

Keeping clause 1707D in schedule 4 creates the risk that corporations will engage in spin rather than real, accurate reporting and rather than committing to take the real action to measure, monitor and reduce their climate impact. The pace of climate change means we don't have the luxury of time to deflect, defer or obfuscate any longer. We must have accurate and transparent climate-related reporting. If we want Australian businesses and the Australian economy to be competitive in the world as it engages towards a race to net zero, it is vital that we have that climate disclosure, that we have the risk accounting, and that we make sure we do it in a diligent and accountable way.

Kate Chaney (Curtin, Independent) Share this | Link to this | Hansard source

Governments should be focused on the long term, making decisions in the best interests of citizens and setting up the rules so we're reducing our risks and pursuing our opportunities. But in this case, where we're debating the merits of a new mandatory climate reporting requirement, the government is catching up to what much of the investment community and the corporate sector has realised and acted upon for years—that is, the long-term efficient allocation of capital depends on a good understanding of climate risk.

So what does the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 actually do? Well, it's an omnibus bill that combines two completely unrelated changes into one piece of legislation. We've seen a few of these lately; often, they can be used as a wedge when something controversial is combined with something innocuous. Luckily, I don't think that's the case here.

Schedules 1, 2, 3 and 5 of the bill implement the recommendations of the Council of Financial Regulators' advice-to-government report which was delivered in July 2020. The schedules relate to our financial market infrastructures, which are like the plumbing of the financial system. The reforms contained in the bill have been recommended by various reports to government going back to 2015. The first reform introduces a crisis management and resolution regime for Australia's financial market infrastructure, which means the RBA can resolve a crisis in a clearance-and-settlement facility if the crisis is likely to pose a threat to the Australian financial system. This seems wholly appropriate. The bill also transfers the current ministerial powers for licencing and supervision to ASIC and the RBA—again, a sensible change to have regulatory powers sit with the regulator rather than have them delegated from the minister.

The more interesting part of the bill, and the part I'll be focusing on, is schedule 4, which introduces mandatory climate reporting requirements for large businesses. At the outset, I want to state by support for this requirement. This bill is a significant amendment to the Corporations Act, and for particular companies requires a sustainability report to be added to the annual reporting package that also includes a financial report, a director's report and an auditor's report. Covered companies will need to tell their shareholders how climate change might affect their performance and operations. The sustainability report requires disclosure of material climate risks and opportunities, the governance process, a strategy and risk management plan, information about how to manage climate-related risks and opportunities, and climate metrics and targets including scope 1, 2, and 3 greenhouse gas emissions. The types of risks covered could include extreme weather events, rising sea levels, market shifts, technology advancements, insurance costs, and logistical disruptions or resource scarcity.

For large companies, the concept of sustainability reporting is not new. Australian companies are actually pretty good at recognising environmental, social and governance—or ESG—risks, with 98 per cent of Australia's top companies providing sustainability reporting, most for many years. Eighty per cent of ASX100 companies recognise climate as a financial risk, with 78 per cent reporting in line with the recommendations of the Task Force on Climate-Related Financial Disclosures. This is actually a topic quite close to my heart. Ten years ago, I was the sustainability manager at one of Australia's 10 largest companies, overseeing its sustainability reporting, including climate reporting. We reported on sustainability and climate risks in our annual sustainability report, because our investors were starting to wake up to the significant risks ahead and wanted to know how we were addressing these risks. Even at that stage we had our sustainability report audited to give investors confidence that what they read was accurate. This was voluntary—both the reporting and the auditing. We did it because it was useful information for our investors. But not every company did it, and there were a range of reporting frameworks and standards. This made it hard to compare sustainability data and risks between companies.

Last month, the Investor Group on Climate Change published an open letter in support of the bill we're debating today. This group of 15 organisations, including the Australian Council of Superannuation Investors, the Australian Institute of Company Directors and the insurance and property councils of Australia, represents more than 900 companies and investors with more than $80 trillion in assets under management. This is a group of organisations that understands risk and sees the benefit in better information about the risks posed by the big shifts climate change will drive.

This bill does create an additional reporting burden, especially for entities that are not already reporting their climate risk. When fully implemented, it's estimated that this requirement will apply to 1,800 Australian businesses and financial institutions. The reporting obligation is rolled out in three tranches: firstly for large entities, with more than $500 million in revenue or 500 employees by 2026; then quite large entities, with more than $200 million in revenue or 250 employees; and then for smaller entities, with revenue over $50 million or 100 employees, but only if they have material climate risks. Those smaller entities, called group 3 entities, don't have to report if they can show that they don't have any material climate related risks or opportunities. The assessment of materiality may incur some cost, but this seems reasonable given how quickly climate risks are changing. We want Australian businesses to be regularly considering how the world is changing and what it means for them.

This change is important for two reasons: so that Australian companies can operate in an internationally competitive market for capital and to help Australia meet its climate targets. Several stakeholders, including the ASX, have made the important point that implementation of a climate reporting regime is crucial to ensuring Australia remains a competitive destination for investment capital. Standardising the approach to sustainability reporting has significant advantages for companies and for the investment community.

Under the bill, climate statements must be prepared in line with the relevant sustainability standards issued by the Australian Accounting Standards Board, which are expected to align as closely as possible with the International Accounting Standards Board. It's essential that Australian companies are operating and reporting at the same level as international counterparts. KPMG has reported that the world's top 250 companies, known as the G250, are almost all providing some form of sustainability reporting. Eighty per cent of these G250 companies are setting carbon reduction targets. There are tomes of research on why sustainability reporting is beneficial for individual companies, like increased investor confident in a company and potential to highlight opportunities arising from a transition to a low-carbon economy. Evidence shows that firms engaged in clean research and development activities increase their stock market valuation. Companies that effectively manage climate related risk and capitalise on related opportunities can gain a competitive advantage in a changing market.

The second reason is supporting climate targets. The Carbon Market Institute said in its submission that climate reporting would work alongside market based mechanisms to help guide investment decisions that would support Australia's climate targets.

As well as disclosing scope 1, 2 and 3 emissions data, a company's sustainability report will need to disclose climate metrics and targets and material risks and opportunities presented by climate. Some commentators don't think this will have a material impact on Australia meeting its climate targets, but I think it helps. Transparency about material risks and future targets will mean that, as a country, we're able to get a better estimate of whether we're on track to meet our emissions reduction targets. Companies will also learn from each other's disclosures, which should drive more of a best-practice approach. If companies are competing for investment dollars based on how they address climate risk, we're likely to see better emissions reduction outcomes.

We need all the tools we can get to achieve our climate targets, so mandatory climate related disclosure will sit alongside the safeguard mechanism and sectoral policies and programs to build a more complete picture of the challenge ahead and how we're tracking towards it. Knowing where we stand will allow us to formulate policies in response to the size of the challenge.

There are two main issues that have prompted some discussion between different stakeholders: the transition period and modified liability. There's been some discussion about the phasing in of reporting obligations for group 1, 2 and 3 entities. On balance, I think the timing proposed seems reasonable. For some it will be a new type of reporting, and having a few years to prepare should increase the quality of the reporting and allow companies to plan for it. I would rather that we have a well-functioning framework that's understood and applied in an informed way than that we have a rushed framework that creates a burden that's not well understood or implemented. As ASIC continues to remind us, the growing interest in environmental, social and governance issues is driving the biggest changes to financial reporting and disclosure standards in a generation. So let's get it right and work with the private sector to build a robust and respected reporting framework. In a recent ASIC survey of AICD members, 31 per cent of respondents said that their main concern in relation to mandatory climate disclosure is the complexity of reporting requirements. I believe we need to give companies appropriate transition time to implement these changes properly. Accounting firms may also need to increase their capability and sustainability auditing, so ramping up the requirements is a pragmatic way to address a big change like this.

The second controversial part of the bill is the inclusion of a modified liability approach for the first three years of the scheme. This means that, for the first three years, civil actions by affected individuals and investor groups cannot be pursued against companies for false or misleading disclosures in their sustainability reports or in an auditor's report about scope 3 emissions, scenario analysis or transition plans. The government says this will ensure that reporting entities, auditors and directors are allowed time to develop experience and practice to report in line with the required standards.

Stakeholders have conflicting views on this. Some think the immunity should be extended, but many think either that it's too wide in scope or that it applies for too long. I can see why some are objecting to this and think that it may allow continued greenwashing for another three years. There is that risk. But, having been responsible for sustainability reporting in a diversified conglomerate, I know it can be complicated. Scope 3 emissions are likely to have a large component of estimation, and I don't think it's appropriate for companies to be civilly liable for these estimates when they're building up their methodology and skills. Scenario analysis and transition plans also contain an element of forecasting that will be challenging. Notably, ASIC may still take an action for misleading and deceptive conduct in relation to climate related disclosures during the transition period. I would support an amendment that allowed civil action in relation to serious misconduct, but it's not a deal breaker.

So I support a moderated liability period. I'm aware that some stakeholders are worried about the length of this modified liability—that three years is too long and allows more greenwashing while being protected from third-party actions. While I note this concern, on balance I think a three-year modified liability period is appropriate, particularly for those companies that are entering the reporting scheme for the first time. For auditors, it may take three years to build up the methodology and standards to appropriately assure these elements of climate reporting that depend on estimation and future predictions.

In conclusion, I think this introduction of mandatory climate risk reporting is necessary for international competitiveness. It levels the playing field so that all covered entities report, rather than there being a reporting burden only on those who choose to do it voluntarily. It will create clear reporting standards for comparison purposes, which will also allow the assurance industry to build the necessary skills. As much as I'd like to see mandatory reporting on climate risk immediately, given my understanding of the complexity of sustainability reporting and given that it is a big change in reporting requirements, I think it's appropriate that requirements are phased in and liability is modified for three years. I would like to see a change to the modified liability framework so that civil action is still available for serious misconduct to protect the intention of the bill, but this will not change my support for the bill in its current form. I commend the bill to the House.

Kylea Tink (North Sydney, Independent) Share this | Link to this | Hansard source

The right of third parties and consumers to hold companies, businesses, governments and individuals to account for making false or misleading statements is crucial not only to our society's general health but specifically to the proper functioning of any market. From our day-to-day purchases through to the big investments some will make in businesses, products or projects, each of these decisions requires a level of access to accurate information to ensure that it's well informed.

At a macro level our global economy has relied on a range of standardised business reporting processes that provide transparency to a multitude of stakeholders who may be interested in a particular business. For many years most of the reporting processes in Australia have been modelled on those generally accepted international standards, which today are commonly known as the International Financial Reporting Standards—or the IFRS. These are accounting standards governing how certain types of transactions and events should be reported in financial statements. They were developed and maintained by a body known as the International Accounting Standards Board, and they seek to ensure the standards are applied on a globally consistent basis to provide investors and other users of financial statements with the ability to compare the financial performance of publicly listed companies on a like-for-like basis with their international peers. The IFRS, which replaced the International Accounting Standards in 2000, are now used in over 100 countries, including the European Union and over two-thirds of the G20.

As someone who has both run national domestic businesses and sat on a global executive team for a multinational company, I know how important it is that these reporting processes are not only standardised but also scrutinised and updated on a regular basis. Across the early 2000s I was both on the board of and a domestic CEO for the Australian operations of a company whose parent entity was based in the USA. In that capacity I witnessed firsthand the shock that was the global recession of 2000 through to the 2007 financial crisis. I rapidly learned the importance of ensuring consistency in reporting business performance across markets. Fast forward to 2017, and, again as the CEO, I worked with the board of a national charity I was then running to produce the first integrated annual report in the not-for-profit sector in Australia. Stepping into that reporting frame was not easy, and it took us around three years to fully understand the process and produce a report that I felt met our obligations under this ambition appropriately. So today I bring not only the voice and expertise of my community of North Sydney to the debate on the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 but also my lived experience in terms of what it means to embrace a new reporting standard in an existing corporate entity.

Ultimately the provision of accurate information to investors and key stakeholders is critical in driving public accountability, and generally my community of North Sydney welcome the alignment of our markets with global climate related financial reporting frameworks, as they believe increased transparency will be to the betterment of us all. The climate disclosure framework debated today will improve the ability of governments, regulators, investors and the public both here in Australia and globally to make informed decisions, manage climate related risks and encourage the transition to a renewable energy economy. Importantly, high-quality climate related financial disclosures will attract international capital.

In this context, the first part of the bill, which introduces a crisis management and resolution regime for Australia's financial market infrastructure, is noncontentious in my electorate. By enhancing the licensing, supervising and enforcement powers of the Australian Securities and Investments Commission and the Reserve Bank of Australia, and changing the roles and responsibilities of the minister, the RBA and ASIC, my community is satisfied the government has taken on board appropriate recommendations from the Council of Financial Regulators.

The second part of the legislation introduces mandatory climate related financial disclosures. This is where my community has a differing opinion on what is appropriate for our times, and it is this divergence of opinion that I will now present. From the outset it's important to note that, as with many climate related initiatives, Australia is behind the pack when it comes to implementing this reform. Jurisdictions including the European Union, the United States, the United Kingdom, Canada, New Zealand, Singapore and Hong Kong have implemented or are implementing mandatory climate related financial disclosures. While this bill is a landmark piece of legislation in Australia, then, many of the largest businesses that will be required to abide by it domestically going forward are in fact already reporting on this basis in other markets. Given this, my community believes the modified liability provisions currently included in the legislation are too broad, specifically when it comes to the immunity related to transition plans. To address this concern I will be proposing amendments to remove immunity from third-party litigation relating to statements about transition plans. While we must be patient and protect and support those entities that may be adopting this style of reporting for the first time, it's also appropriate that we expect those businesses with deeper resources and broader experience to be faster adopters.

A strong climate related reporting regime which ensures that disclosures are accurate, transparent and consistent across all companies is absolutely required in our country, particularly as the impacts of what is now unavoidable climate change are being felt more often and more broadly, with severe weather events hitting more frequently. Schedule 4 of this bill establishes the framework for a mandatory climate disclosure reporting regime in Australia. This regime will require entities of a certain size which lodge reports under the Corporations Act, chapter 2M, or which have emissions reporting obligations under the National Greenhouse Gas and Energy Reporting Scheme, to make climate disclosures in accordance with the sustainability standards set out by the Australian Accounting Standards Board. At this stage, it's proposed that these new obligations will be phased in over four years.

As mentioned earlier in this speech, as someone who has run businesses I understand the need for a well-balanced regime that's capable of being implemented as soon as practicable while also allowing businesses the necessary time to adapt to a complex new reporting environment. It's highly appropriate that the requirement to prepare a sustainability report be phased in based on the size of an entity. As it stands, group 1, larger entities, must prepare a sustainability report in the first transitional period, which is from 2025 to 2026. Group 2 entities must prepare a report during the second transitional period, from 2026 to 2027, and group 3 entities must prepare a report on or after 1 July 2027.

Having run businesses of varying sizes, I support this targeted approach, knowing that larger listed companies will be more able and better resourced to meet the incoming regime, while less mature market participants may require more time to adjust to the new reporting requirements. I am concerned, however, that the bill, as it currently stands, includes a broad modified liability approach for the commencement of sustainability reporting for the first three years of the scheme. The legislation claims to be designed to ensure that reporting entities, auditors and directors are allowed time to develop experience and practice to report in line with the required standards. However, the Senate Economics Legislation Committee inquiry into this bill found that many submitters and experts raised concerns regarding the inclusion of this three-year modified liability period for all reporting entities. The concern was tied to the fact that we're already seeing high rates of corporate greenwashing in Australia, with at least one in two companies surveyed by the ACCC in 2023 found to be promoting concerning claims about their environmental credentials.

At a time when urgent climate action is critical, and consumers and communities are demanding that we take faster action to regear our society towards a future focused economy, it's essential that entities are held to account for greenwashing and promoting false solutions to the climate crisis. In many instances, the larger companies covered by the proposed modified liability arrangements have already begun voluntarily reporting on climate related risk as their boards and shareholders have, rightly, demanded that level of transparency and accountability of the business's executives. For this legislation to be as effective as it can be, my community would argue that it should include a higher standard for those companies that have already begun to report in this way, whilst allowing room for the development of competency amongst those businesses which may be stepping into this reporting style for the first time. Some form of indemnity provisions are appropriate, given the scale of this reform, and transitional measures will encourage fuller reporting and a proper understanding of the requirements by companies and directors. It is true that we need to get the balance right, but it's also true that we should strive to go as far and as fast as we can, as we are already far behind other markets.

The amendments that I will propose would remove immunity relating to transition plans while retaining the rest of the bill's modified liability regime. Why I think this makes sense is that transition plans are company led initiatives based on company business models. The integrity of those plans is essential, as they drive investor behaviour. Given that a company must already have some level of competency in the area of environmental and sustainability reporting to produce them, those businesses should be held to a higher expectation. In the exposure draft of this legislation, the only statements covered by the three-year immunity from private litigant action were those made in the sustainability report about scope 3 greenhouse gas emissions in the scenario analysis. The inclusion of limited immunity relating to statements about transition plans was only proposed for the first time in the final iteration of this draft bill. The inclusion of transition plans in the immunity provisions is both a significant departure from the proposals in the exposure draft and from the general application of misleading and deceptive conduct provisions in the Corporations Act, the ASIC Act and in the Australian Consumer Law. It's unacceptable for this change be made at this point and the legislation progressed without significant debate.

The interaction between a staggered start date for different-sized entities in the immunity provisions is also worth noting, as the current structure of immunity benefits the largest companies, who will enjoy three years of modified liability, while the smallest companies, who are the least equipped and have relatively less capacity, will only have the benefit of one year. That just seems unfair.

Yet again, the big guys with the loudest voices and the deepest pockets seem to have been able to negotiate more breathing space for themselves, when in truth I believe they should be leading the charge and setting an example that lets the smaller guys follow more easily. We should not apologise for asking businesses to continue to champion the pathway that they are already on. We don't need them to coast; we need them to step up yet another gear. In the same way that we would not expect an A-level student to be told to study less as they move towards the next exam, we need to ensure businesses keep striving for advancement.

Debate interrupted.